Takaful industry to see steady growth in 2021

By S BIRRUNTHA

MALAYSIA’S takaful industry is expected to continue its steady growth in 2021 supported by government initiatives and a favourable Islamic finance ecosystem.

Fitch Ratings Inc in a note yesterday said the sector’s growth will be further propped up by strong economic growth, increased digitalisation, higher awareness and a low life insurance (LI) penetration rate.

The rating agency noted that Malaysia’s vibrant Islamic finance ecosystem includes Islamic banks, Shariah-compliant corporates, Islamic fund managers and halal industries that seek takaful products.

Bancassurance, it added, remains distribution channels of takaful products.

“Takaful demand also arises from sukuk issuance, which makes up more than 60% of outstanding domestic issues and is often linked to projects and insuring the under-lying assets. Takaful firms can also invest their liquidity in diverse sukuk and other Islamic options,” it noted.

Fitch expects the country’s takaful penetration to keep rising, supported by government initiatives to provide financial assistance for the bottom 40% income earners to purchase insurance and takaful coverage.

It said Malaysian takaful continued to gain ground in the insurance market during the 2020 pandemic, in which it accounted for 38% of the domestic LI market in the first half of 2020 (1H20), compared to 34% in 2019.

It added that general takaful accounts were stable at 16% of the overall general insurance (GI) market.

Fitch noted that the takaful industry faced low top-line growth in 2020 due to a fall in new contributions under pandemic- related movement restrictions.

“Consequently, the contribution of family takaful to overall growth dwindled to 2% in 1H20, against 25% in 2019, while general takaful contributions rose by only 0.6%, from 20%.

“Nonetheless, takaful growth remained steady compared to GI and LI contributions, which shrank by 3.6% and 12.6% respectively,” it said.

Fitch also said family takaful funds recorded a 28% in profitability in 1H20 due to unrealised losses from equity investments and lower new contributions.

This was a smaller fall than for LI funds where profitability declined by 79%.

The rating agency stated that the takaful sector’s capital adequacy ratio reached 240%, above the insurance sector’s 226%.